Taking content delivery to the edge
Akamai Technologies raced through 2000, growing revenue quarter over quarter by 167 percent in the first quarter, 151 percent in the second quarter, 50 percent in the third, then 36 percent in the final three months. The pace earned it the top spot among the Fast 50. But the companys decreasing growth rate natural as the company became bigger also hinted at the slowdown that would hit the Internet world in 2001.
To be sure, the ramp-up in sales came off a small base 1999 was the first year that Akamai, founded in 1998, booked revenue, and it did not really pick up steam until the second half of the year but the customer list grew as fast as the revenue. Akamai, led by Chairman and CEO George Conrades, had 1,337 customers and 8,000 servers on 473 networks in 55 countries by the end of 2000. It now has almost 1,500 customers using 10,000 servers on 650 networks around the world.
"The concept of moving everything to the edge has caught on. It is not just Akamai," said Steven Wolfe, director of corporate strategy at the Cambridge, Mass., company. "We pioneered one of the services content delivery but there are lot bigger companies than Akamai Microsoft with .Net, Sun Microsystems with SunOne, IBM with WebSphere and Oracle with All IP who are supporting it."
Akamais suite of content delivery, streaming audio and video, traffic management and other services is bundled in a package called EdgeAdvantage. The original core product, FreeFlow, which delivers rich content, still accounts for almost half of the companys revenue. "FreeFlow was a service we could sell and enabled us to deploy our servers in hundreds of networks," Wolfe said.
Akamai intends to use that network of servers and its technology base to roll out additional services, at little additional cost to Akamai, Wolfe said. Adding new services to the EdgeAdvantage bundle, such as EdgeSuite for delivering dynamic page views, is the goal. The business model is similar to that of a telecommunications operator, where services can be added at a low cost once the basic technology platform is in place, Wolfe said. He repeatedly called Akamai an overlay network to the Internet.
EdgeSuite, introduced in January, costs three to five times as much as the $8,300 average fee for FreeFlow and has very good profit margins, Wolfe said. Akamai hopes to have 100 EdgeSuite customers by years end.
"They have definitely established themselves as the de facto standard among [content delivery] companies," said Kevin Trosian, a securities analyst at Bank of America Securities.
However, 2001 got off to a mixed start. First-quarter revenue was up 456 percent over the previous year, but only 8 percent over 2000s last quarter. Akamai, which had 2000 revenue of $89.8 million, lowered estimates for 2001 to between $175 million and $190 million from earlier projections of $240 million to $250 million, because of economic conditions. It also reduced staff by 180 employees, and reduced capital expenditures for the year to $75 million to $85 million. In April, when the company reported its first-quarter results, it wrote off $1.9 billion in assets largely associated with InterVu, one of three acquisitions made in 2000. Streaming video service based on InterVus product are still selling well, but the goodwill from the purchase had to be written down, a reflection of the high price of companies in 2000, Wolfe said.
Akamai expects to break even in 2002s second quarter. Declining cost of telecommunications bandwidth and colocation space should help the company reach that goal. "Both are coming down precipitously," Wolfe said.
Trosian, however, projects that the company will break even in 2003, a year later than Akamai predicts. He estimated total corporate revenue at $169.5 million for 2001, slightly lower than Akamais guidance, and added that he might have to reduce that estimate because of the current downward trend in information technology spending.
He also noted that sales of EdgeSuite, which helps enterprises reduce the number of servers and administrators needed for networks, could actually benefit from the tech spending backslide. EdgeSuite will generate $15 million to $20 million in revenue for Akamai this year, Trosian said.